AID Redesign: Can USAID Learn from MCC’s Experience?

By: Patrick FineSeptember 27, 2017

One of the more forward-leaning recommendations in the aid redesign proposal of the MFAN co-chairs that is sure to elicit considerable controversy is to join together the U.S. Agency for International Development (USAID) and the Millennium Challenge Corporation (MCC). The thinking behind this recommendation is to bring coherence to U.S. development policy and ground our assistance programs in the best practices of both agencies. Whatever the final outcome of the redesign efforts, one effectiveness principle that should be honored is to tap best practices from across the U.S. Government. This is especially the case for USAID and the MCC. One seemingly mundane practice built-in to MCC’s management system could have a big impact on the effectiveness of US development efforts if adopted by USAID or any new assistance structure.

USAID and MCC are the US Government’s two agencies dedicated to managing foreign assistance to developing nations. USAID is the “grand dame” of US development. Established in 1961 by President John F. Kennedy to reform a system considered “obsolete, inconsistent, and unduly rigid…”, USAID portrays itself as the U.S. Government’s “premier development institution” and for 60 years it has been a leading force in the theory and practice of international development. USAID’s ‘shaking hands’ logo is recognized the world over as a symbol of American generosity and good will.

MCC is the young upstart. Established in 2004 by President George W. Bush, as its name suggests it was set up to bring 21st century thinking to the development challenges of a new era. Drawing on decades of development experience and capitalizing on emerging trends in development finance, MCC sprang onto the development scene with a cock-sure attitude that its evidence-based, investment oriented model was more modern and effective than its stodgy older sibling’s traditional approach to bilateral aid. Not uncoincidentally, MCC was born at a time when USAID had for years been starved of the resources needed to update and reform its systems and bring in new talent. A weakened USAID added to the allure of creating a new organization with a fresh mandate. (It is worth noting that USAID has never received the recognition it deserves for keeping the US development enterprise going during these lean years.)

Ever since MCC was born there have been questions about whether it makes sense for the US to have two development agencies, often working in the same countries. Skeptics assert that this results in fragmentation and/or duplication of US development efforts and policy incoherence. In its early years, MCC exacerbated the situation by portraying itself as the “good development” alternative to USAID and refused to cooperate with USAID in some countries.

As MCC’s portfolio grew, it confronted the difficult and often humbling realities of managing large scale programs in developing countries. To its credit, as it gained experience MCC matured as an organization: it diversified its leadership to add seasoned development professionals to its initial cohort of financiers and economists, began actively cooperating with USAID and other US agencies, and adapted its business practices. By 2010 when I joined MCC as the Vice President for Compact Operations, MCC no longer saw itself as a competitor to USAID. Rather, it had become clear that MCC’s and USAID’s operating models complemented each other and together expanded the USG’s toolkit to tackle development challenges, project US influence, and advance American interests.

What began as sibling rivalry has turned into real partnership. MCC has taken advantage of USAID’s experience to improve the technical substance of its programs and USAID has benefited from MCC’s expertise in economic analysis and rigorous evaluation. Now that MCC has nearly 15 years of implementation experience, it’s a good time for USAID to draw on MCC’s experience in program management.

One seemingly small change that could make a big difference and be relatively easy for USAID to adopt is what MCC calls the entry into force (EIF) preparation period. This is the first stage in the implementation of an MCC Compact (MCC’s term for its bilateral program agreements). EIF preparation begins as soon as a Compact is signed and ends when MCC and its partner government declare the Compact has entered into force and start implementation.

The need to allocate time for project start-up before declaring EIF was one of MCC’s early lessons. Unlike USAID which can extend the period of performance on a grant or contract, MCC is bound by law to complete all program activities in no more than 5 years from the point a Compact enters into force. Once the clock runs down, no funds may be expended on program activities.

In the beginning, Compact managers were dismayed to see necessary start-up tasks devour months of precious time from already overly ambitious schedules. Very quickly MCC introduced the concept of EIF to build in time for program start-up that would not count against the five-year clock. Not only did this allow MCC to avoid counting time needed for start-up towards implementation, it ensured a thorough approach to establishing and equipping offices, installing and testing sophisticated management systems and operating procedures, and most importantly, recruiting the right mix of skills and experience needed to run high profile, large-scale programs.

The most critical time in a project occurs right at its start. But in the real world, project startup is often slighted. At MCC the preparation period varies by Compact and country, but the average time to reach EIF over 32 Compacts was 10.5 months. In addition to allowing for thorough start up, this also afforded MCC additional time to build buy-in for policy reforms and socialize planned activities among stakeholders. Far from being inefficient, the overall result was greater local ownership and improved program performance that boosted MCC’s ability to deliver results. This is consistent with the literature on project management which points to a strong link between effective start-up and project success.

This is a lesson USAID has never learned.

Inherent differences in USAID’s and MCC’s operating models create different incentives that shape behavior in the two organizations. The strongest incentive in MCC’s system is to complete all Compact activities before the clock runs out. The incentives at USAID are to reduce the time to design and start projects (which has been the objective of successive reform efforts). So, where MCC feels pressure on the back end of its programs as the immutable five-year clock ticks down, USAID feels the pressure on the front end as Congress, the White House and partner governments demand quick wins and quarterly results. As a result, most USAID institutional awards require the awardee to set up and equip an office, recruit and hire staff, put sophisticated management and compliance systems in place, submit a multi-year costed workplan…and begin program activities within 60-90 days. It is not uncommon for a project officer to push for these tasks to be done in thirty days. This hasn’t changed in 30 years even as regulatory, labor and tax laws have grown far more complex and time consuming.

There are two reasons for this: first, USAID and its partners perceive the problems as urgent and consider every day given to preparation as a day lost to bureaucratic rigmarole at the expense of the real work of project delivery. And second, unlike MCC whose programs are fully funded when a Compact is signed, USAID’s appropriations come in annual increments. Future funding is not tied to financial commitments (project mortgages) in bilateral agreements, but to the pipeline of funds previously appropriated but not yet spent. This compels USAID to prioritize initiating program activities over establishing management systems and procedures.

One constant in my nearly twenty years as a USAID project manager was problematic project start-up resulting from the notion that implementing partners should “hit the ground running”. This culture of urgency works against a more rigorous approach to project management and forces grantees and contractors to build the plane while flying it. The result is essential start-up actions compete with vital tasks such as building relationships with stakeholders and launching program activities. Experienced managers know that short cuts often lead to long delays, yet USAID has never systematically reformed its business practices related to this aspect of the project implementation cycle.

For USAID to reform its approach to project start up would require culture change and support from Congress, but it is doable. Internally, USAID could readily develop guidance to program staff and contracting officers to include a dedicated start-up phase in the project life cycle. Externally, USAID would need agreement from Congress and the Office of Management and Budget to factor in start-up time and costs when reviewing program results and funding pipelines. While no one would want to lose a sense of urgency when addressing development problems, MCC’s experience shows that shortchanging start-up is a false economy and that partner governments are willing to take the time to get start-up done right when they are involved in the process.

Learning from and applying best practices across agencies is a critical step in making development more effective, efficient and accountable. MCC learned that the time and money invested in project start-up improves performance, both in business operations and program results. As the Trump administration looks for ways to make development assistance more efficient and cost-effective, it should encourage USAID to take a leaf from MCC’s playbook and adjust its business practices to require that all large awards incorporate a start-up period into their first year workplan.